FINRA Charges Former Ameritrade Broker with Engaging in Outside Business Activity

Financial Industry Regulatory Authority (FINRA) provides brokers and brokerages with a framework to guide relations between the parties. While FINRA can provide certain benefits to brokers including the ability to transition into a new employment role, brokers also are constrained from certain actions and owe their employer and investors certain duties. Therefore, before engaging in certain actions like running a side business, it is essential for financial brokers and advisors to consult with an experienced  business litigation attorney to discuss any potential conflicts or concerns their intended business venture may create.  

Business litigation attorney William S. Heyman has advised financial advisors and brokerages for more than 20 years on FINRA issues and other concerns. Mr. Heyman can assess your concerns and provide actionable guidance. To schedule a confidential consultation at the Law Offices of William S. Heyman call (410) 305-9287 or contact the firm online.

Former Broker Solicited Investments Through Investment Facility He Owned

Per disciplinary proceeding No. 2014039839101, Department of Enforcement v. Seol, Seol was a registered representative who was employed by FINRA-registered Ameriprise from September 2011 to June 2014.  In September of 2011, Seol formed the Western Regional Center, Inc. (WRCI). WRCI was a qualifying investment facility that accepted investment from foreign immigrant investors as part of the EB-5 visa program. In particular, Seol solicited investments in an energy investment fund. The complaint alleges that Seol never provided Ameriprise with notification of his outside business activities. Therefore, the firm never provided approval of Seol’s outside business activities. According to the complaint, Seol solicited investments from 200 individuals totaling $100 million.

What FINRA Rules Was the Broker Alleged to Have Violated?

The violations set forth by the FINRA Department of Enforcement are captured in three counts set forth in the complaint. The violations generally allege that three rules were violated due to Seol’s outside activities and failure to provide notice of the activities. The rule violates are:

• NASD Rule 3040 – NASD Rule 3040 requires associated broker-dealers to provide requisite written notice to their FINRA-registered employer should they wish to engage in a private securities transaction. The notice must be sufficient and describe the proposed transaction in detail along with the broker’s role in the transaction. This rule is construed broadly and includes not only sales of securities but also introducing investors to an issuer, arranging meetings, or referring investors. Violations of NASD Rule 3040 are also violations of FINRA Rule 2010.
• FINRA Rule 2010 – Under FINRA Rule 2010, “A member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade.” Seol violated Rule 2010 in three distinct ways. First, Seol violated the rule by failing to provide notice to Ameriprise regarding his plan to introduce, recommend and solicit investments from foreign individuals. Second, Seol failed to provide notice to Ameriprise and receive approval from the same for his related outside business activities stemming from the formation and operation of WRCI. Finally, Seol violated FINRA Rule 2010 by making false and inaccurate representations regarding his outside business activities on his 2012, 2013, and 2014 Annual Compliance Questionnaires.
• FINRA Rule 3270 – The relevant section of FINRA Rule 3270 sets forth the principle that a registered broker or advisor may not serve as an owner, director, partner, employee, independent contractor, or otherwise receive or expect compensation for work performed outside of the employment relationship with the FINRA-registered employer unless written notice is submitted and approval is granted.

The relief sought in the disciplinary proceeding includes that the disciplinary panel includes a finding as a matter of law that Seol violated these rules. Second, FINRA enforcement seeks the imposition of the penalties, including monetary sanctions, that are authorized per FINRA Rule 8310(a). Furthermore, FINRA Enforcement is seeking restitution for the costs of the enforcement proceeding per FINRA Rule 8330.

There is a high likelihood that the violations allegedly committed could have been cured through more careful handling and planning efforts. Ameriprise’s written policies generally mirrored the FINRA requirements regarding notice and approval of outside employment activities. Providing notice of this type, careful record keeping regarding written approvals, and additional steps would have likely prevented the vast majority of the allegations against Seol.

Work With a Baltimore Business Attorney Experienced in Advising Brokers and Brokerages

Brokers who are considering outside employment activities or side ventures must proceed methodically to ensure that they remain compliant with all provisions of FINRA. Financial broker attorney William Heyman has more than 20 years of experience providing guidance of this type to financial advisors. To schedule a confidential legal consultation at the Law Firm of William S. Heyman call (410) 305-9287 or contact the firm online.